If you are turning a side hustle into real income, one decision comes up fast: should you run it as a sole trader, or set up a company? Both are legal ways to trade, but they differ a lot on tax, cost, liability and paperwork. For most people starting out, the answer is simple — but it changes as the money grows.
Quick answer: Start as a sole trader if your side hustle is small, low-risk and run by you alone. Consider a company once your profits are consistently high, your risk is growing, or you want to bring in partners or investors. The official starting point for comparing structures is business.gov.au. This article is general information only, not tax or legal advice — talk to a registered tax agent or accountant before you register anything.
What each option actually is
A sole trader is you, trading under your own name or a registered business name. There is no legal line between you and the business. The income is your income, and the debts are your debts. You use your own tax file number, and the business income goes on your personal tax return.
A company (usually a proprietary limited company, or Pty Ltd) is a separate legal entity. It has its own tax file number, its own ABN, its own bank account and its own tax return. You would usually be its director and shareholder, but the money in the company is not yours to spend as you like — it comes out as salary, dividends or a properly documented loan.
Sole trader vs company: side-by-side
| Sole trader | Company (Pty Ltd) | |
|---|---|---|
| Legal identity | You and the business are the same | Separate legal entity |
| Liability | Unlimited — your personal assets are on the line | Generally limited, with exceptions such as personal guarantees |
| Setup cost | ABN is free; a business name costs $47 for one year or $108 for three years | $636 ASIC registration fee from 1 July 2026 |
| Yearly cost | Business name renewal, if you have one | $342 ASIC annual review fee, plus accounting |
| Tax | Personal rates on all your income combined | 25% for a qualifying base rate entity, otherwise 30% |
| Tax return | Business income on your personal return | Separate company return, plus your own return |
| Taking money out | The profit is already yours | Salary, dividends or a documented loan only |
| Partners or investors | Not practical | Possible through shares |
| Paperwork | Light | Heavier: ASIC duties, records, director obligations |
All figures above are as at October 2026. ASIC fees are indexed each 1 July, so check the current figure before you register.
How tax actually differs for a side hustler
This is where most people get tripped up, because a side hustle sits on top of your day-job income.
As a sole trader, your side-hustle profit is added to your wage and taxed at your personal rates. For 2026–27, resident rates are: nil up to $18,200; 15% from $18,201 to $45,000; 30% from $45,001 to $135,000; 37% from $135,001 to $190,000; and 45% above $190,000 — plus the 2% Medicare levy on top. So if your day job already puts you in the 30% bracket, every extra dollar of side-hustle profit is taxed at 30% (or higher), not from zero.
As a company, profit the company keeps is taxed at the flat company rate — 25% for a qualifying base rate entity, 30% otherwise. There is no tax-free threshold for a company. The saving only really sticks if the profit stays in the company. When you pay yourself a salary or dividends, that money is taxed at your personal rates, with a credit for tax the company already paid. So a company does not magically make your tax disappear — it changes when and how you pay it.
A rough rule of thumb used by many accountants: a company starts to look tax-effective once your side-hustle profit is consistently high — often around $100,000 a year or more — and you do not need to draw all of it out. Below that, the extra ASIC and accounting costs usually eat the saving.
The traps nobody mentions at the start
Personal services income rules
If your side hustle is mainly you selling your own skills — freelance writing, design, consulting, contracting — the personal services income (PSI) rules may apply. If most of your income comes from your personal effort and you do not pass a personal services business test, the income can be attributed back to you and taxed at your personal rates anyway. In that case, a company gives you no tax advantage at all. Contractors earning most of their income from one client should check this before registering a company.
Liability is real for sole traders
Unlimited liability sounds abstract until something goes wrong. If a client sues, or the business owes money it cannot pay, your personal savings, car or home can be at risk. Insurance — public liability or professional indemnity, depending on what you do — is worth considering whatever structure you pick, but it matters most for sole traders.
Company money is not your money
Paying personal bills from the company account is the classic beginner mistake. Loans or payments from a private company to a shareholder can be treated as unfranked dividends under the Division 7A rules unless they are repaid or put under a complying loan agreement. Keep business and personal money strictly separate.
Super and GST still apply
A company must pay super guarantee (12% of ordinary time earnings) for employee directors it pays. A sole trader is not required to pay super for themselves, though it is strongly recommended — your future self will thank you. And whatever your structure, you must register for GST once your turnover reaches $75,000 a year.
Who each option suits
Choose a sole trader if:
- Your side hustle is new, small or a test — you are not sure it will last.
- You work alone and the work is low-risk.
- Your profit is modest and you need every dollar you earn.
- You want the cheapest, simplest setup with the least paperwork.
Choose a company if:
- Your side-hustle profit is consistently high and you can leave some of it in the business.
- Your work carries real liability risk, or clients expect a company before signing bigger contracts.
- You plan to hire staff, take on a business partner, or raise investment.
- You want a clean separation between your personal assets and the business.
If you are still at the idea stage, our guide on how to start a side hustle walks through the first steps, and if you are wondering about registration, see do you need an ABN for a side hustle.
Can you switch later?
Yes — and most people do. The common path is to start as a sole trader, then move to a company once the income, risk or growth justifies it. Switching is not free: it means new registrations, new tax obligations, and there can be capital gains consequences on assets you move across. That is why it is worth getting advice on timing rather than rushing into a company on day one.
Which is better for a side hustle?
For most side hustlers, a sole trader is the better starting point: free to set up, simple to run, and cheap to close if the idea does not work out. A company is the better choice once the hustle stops being a side project — when profits are high, risk is real, or other people are involved. The structure should follow the size of the business, not the other way around.
Frequently asked questions
Do I need an ABN for a side hustle?
If you are carrying on an enterprise, yes — you will generally need an ABN, and it is free to apply for one. A company gets its own ABN as part of registration; a sole trader applies for one in their own name.
Can I run a side hustle as a sole trader while employed?
Yes. Your side-hustle income is simply added to your employment income on your tax return. Just check your employment contract first — some employers restrict outside work or require you to disclose it.
Is a company better for tax?
Only sometimes. A company rate of 25% beats a personal rate of 37% or 45%, but the saving applies mainly to profit left in the company, and the company costs more to run. At lower profits, a sole trader usually comes out ahead.
What does it cost to set up a company?
From 1 July 2026, ASIC charges $636 to register a proprietary company, plus a $342 annual review fee each year. Accounting and compliance costs are on top of that.
Figures in this article are general information as at October 2026 and can change — ASIC fees are indexed each July and tax rates are set each financial year. Check the current figures and get professional advice for your own situation before deciding.
